Tag Archives: Yanis Varoufakis

Economists in teen-guy-utopia

My very first post on this site mocked the economics profession for its teen-guy-utopia vision of reality. “Teen-guy-utopia” sounds like a mean-spirited exaggeration, but it’s not. The eminent economist I focused on, Paul Krugman, actually describes himself as a low-tech, real-life version of his boyhood sci-fi hero.  He doesn’t have super-powers or a space ship, but the analytical power of economic reasoning supplies a good-enough equivalent; with it, he’s helping guide humanity toward a better future. Most of us ordinary folk who are being guided aren’t aware of what’s happening, because it involves subtly rejigging the incentives we humans respond to– but we’d be grateful if we knew, because in the long run we’ll be better off as a result.

The gist of my post was, maybe it’s unwise to hand over too much social influence to a profession whose self-image derives from teen fiction. Or at least, if we’re taking inspiration from teen fiction, could we maybe mix in some Judy Blume?

Now we have a new example to ponder, thanks to the current debt crisis in Greece.   In case you haven’t been following, here are some of the background basics: Greece is an under-performing economy, and as such it’s deep in debt (it has lots of other problems too, including an insanely corrupt tax system). In the old days, Greece could have done what underperforming economies have always done– devalue its currency, so its money bought fewer American dollars or British pounds. That would make it more expensive for Greeks to buy other countries’ stuff and cheaper for everyone else to buy theirs, so money would flow in and the economy would take off. But Greece can’t do that, because since 2000 it’s used the euro, the same money as eighteen other European countries, some of them super-high-performers like Germany. So to escape its troubles, Greece has to create a friendlier business climate in other ways– mainly by pushing wages way down, cutting welfare programs and pensions, eliminating regulations business-folk dislike, and so on. All this will hit ordinary people very hard, and for the last year there’s been a frantic search for a way out.

So that’s where today’s story really starts, because of course one way out would be for the Greeks to dump the euro and return to an independent currency, which they could then devalue in the classic way. That’s the course that Paul Krugman himself recommended, and now we’re learning that Greece’s finance minister had actually developed a dump-the-euro plan. The minister of course was Yanis Varoufakis, the globally prominent, self-described “erratic Marxist” economist, who held university positions in England and Australia before returning to his native Greece. Right after leaving the government, Varoufakis gave a few interviews explaining the planning process he led.

Which is where the teen-guy-utopia thing resurfaces– because maybe the plan he came up with could work there, but not here on earth. In his interviews, Varoufakis describes assembling a top-secret, five-person team of brainiacs, including an IT professor at Columbia and another world-class economist from Texas; they claim to have hacked into various govenrment computers and extracted various banking information. Armed with that, Varoufakis explained, “we were planning to create, surreptitiously, reserve accounts attached to every tax file number, without telling anyone, just to have this system in a function under wraps. And, at the touch of a button, to allow us to give PIN numbers to tax file number holders, to taxpayers.” With that, Greeks could use their smartphones to do all the normal banking activities, and the new money would be off and running. (For other descriptions, see here and here.)

OK, got that? A top-secret, hand-picked team of five experts in various fields, working at top speed; they hack into mainframes, they press a button, and a new system starts into operation.

Here of course the teen fiction model is Mission Impossible (the TV version, not the Tom Cruise one), not sci fi, but the distance from real life is about as great. It turns out, only about a third of the Greeks even have smartphones, and anyway, who’s ever heard of IT change-overs working at the push of a button, without massive, lengthy, impossible-to-keep secret testing efforts? That’s before you even get to the possibility that some of the institutions being hacked might fight back– might even call in the cops or take more dramatic steps. This was not a plan that showed much familiarity with real life.  (Update, August 19: for a well-informed but hilarious take-down of these schemes, check out this article from the always-impressive Naked Capitalism team.)

Now, this is a pretty extreme case, and I can’t picture most economists launching a goofball project like this. But at the same time, Varoufakis isn’t some crazy outsider– he’s an internationally respected member of the economics establishment, whose views were being widely quoted long before he entered the government. We humanists get to take him as in some sense representative of his discipline, and we get to point his way any time we’re accused of being out of touch with the real world.